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Cost of Carry
Cost of carry denotes the net cost incurred when the underlying instrument is
bought on the cash market, and held (carried, "carry") until maturity of the
futures transaction. Holding and financing costs of stock futures transactions are
usually higher than the income generated.
Comment:
As We can observe in Divi’s Laboratories, Cost of carry is higher (31.06) when
expiry of contact is far. As expiry approaches near, cost of carry will decease
and will end up to zero.
Basis Risk
We can observe that there is lot more variation (shown in graph). This occurs
due to variation in the spot market. This is caused by the various factors in
stock. Also, it is a difference of Actual Future price and Spot price of share. So
at the expiry date we see price converging and basis risk is zero.
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3. Additional Benefits (Dividend)
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